A guide to financial planning for older adults

As you step into what some advisers call "The Golden Years" (so cliché!) it is more important than ever to secure a financial future for you and your loved ones. With the right financial planning, people in their 60s, 70s, 80s and beyond, can manage healthcare costs, maximise their benefits and understand the impact taxes may have on their loved ones. In this guide, our expert financial advisers share practical insights on estate planning, tax efficiency and long-term care strategies to help you make informed decisions.

Secure your retirement & protect your legacy

There is no one else who can better understand the unique financial challenges faced by people over the age of 65, than Unividual. Some of our clients have worked with us for the last 25 years and we have supported them through every life transition, through to working with their children and grandchildren. With some families we are working with three generations. In this financial planning guide we hope to bring to you a wealth of considerations for when it comes to managing money in your older adult years. Regardless of your age, we provide families with tailored solutions to enhance everyone’s financial well-being, so whether you are reading this guide for yourself or you have an elderly parent that you would like to support, our team of experts have curated some actionable tips to help people navigate their retirement years with confidence and peace of mind. We will cover:

– Accessing retirement income tax efficiently
– Estate planning and legacy considerations
– Inheritance tax (IHT) planning
– How to invest for long-term financial stability
– Long-term care
– Equity release & Later Life Mortgages
– Capital gains tax (CGT) on the sale of property
– Tax implications for children living in their parent’s property
– Protecting against financial scams and fraud
– Support for vulnerable clients

Join us as we unlock the secrets to a financially secure retirement.

Accessing retirement income tax efficiently

Your income sources in retirement can come from various pots, including pensions, investments, property and savings accounts. The way you access these funds and the order in which you draw from them, can significantly affect your tax obligations and the longevity of your retirement savings.

Defined contribution pensions: With defined contribution pensions, you have flexibility over how and when you withdraw your funds. You may take a 25% tax-free lump sum and then withdraw additional amounts as you need. However, be mindful that any withdrawals beyond the tax-free portion are considered taxable income. It can be beneficial to spread these withdrawals across the tax years, keeping within lower tax brackets to minimise tax liabilities. Some people choose to use pension drawdown to provide regular income, while others prefer occasional lump sums.
Defined benefit pensions: Defined benefit or final salary pensions provide a set income for life. While there’s less flexibility in how this income is taken, it’s generally secure and doesn’t run out, making it a reliable foundation for your retirement income.
State pension: Your state pension is another source of regular income, and while it’s taxable, you need to take in to account whether it pushes you into a higher tax band, depending on your other income. If you have other savings, deferring your State Pension can increase the amount you receive when you do start claiming it, which may be beneficial for some retirees.
Investment income: Income from investments, such as dividends, interest or capital gains, can be complicated if you don’t have a tax-efficient plan. Dividends and interest from ISAs, for example, are tax-free making ISAs a valuable income source in retirement. For taxable investments, make use of your annual dividend and capital gains allowances. Spreading the sale of assets across tax years can help you stay within these allowances, reducing your tax burden.
Property income: If you own rental property, the rental income can supplement your retirement income. However, rental income is subject to income tax and you’ll need to report it annually. Expenses associated with managing and maintaining the property may be deducted, potentially reducing the taxable amount.
Cash savings: You may have some money in cash which you need to consider, this might be for emergencies or or short-term needs. Whilst this is a low-risk source of income, savings accounts may not offer high returns, in fact they might be costing you because of the impact of inflation. It might be a good time to assess how much you have in cash and the impact it is having on your overall tax situation.

Deciding when and how much to draw from each of these income sources requires careful planning to avoid unnecessarily high tax bills. This is one of the benefits of working with a financial adviser as they will help to ensure you are using your retirement income sources in a way that meets your needs while maximising tax efficiency.

Contact our expert advisers

Estate planning and legacy considerations

The big question is always “how do I plan for the distribution of my assets after my passing?” The answer lies in what our profession calls estate planning. Most people plan for death by focusing on funeral costs. Whilst funeral expenses are a strain on beneficiaries, there are a lot of costs that beneficiaries will incur upon your death outside of this, so we need to dig deeper. This is where estate planning comes in because it ensures your assets are distributed according to your wishes while minimising costs, taxes and legal complications.

Legacy Planning PRO Tips:

Hear from our Chartered Financial Planner, Andy Lei, who heads up our Edinburgh office, he explains how he supports his family clients through estate planning:

A lot of people don’t have a Will do I really need one? “I start by ensuring my client has a Will and Testament, if not I encourage this right from the get go. This outlines how you wish your assets to be divided and who the beneficiaries are. There are options like putting a trust in place but they come with expensive legal fees and there are other planning strategies we can explore. Then we look at the designation of beneficiaries. This is the process we use to ensure the name of who will receive the proceeds from your pension and insurance policies upon your death, is registered. I annually review these designations to ensure they align with a client’s wishes. “

What is a Power of Attorney? “Additionally, think about powers of attorney and healthcare directives. These legal documents allow you to appoint someone to make financial or medical decisions on your behalf if you become incapacitated, ensuring your preferences are respected. A lot of people don’t have a power of attorney and it is pretty essential”

Anything else I need to consider? “Legacy planning is not solely about financial assets, it also involves the passage of values and traditions. I get my clients to consider how they want to be remembered and how their life lessons can be imparted to future generations. Charitable giving can also be part of someone’s legacy. Making donations can leave a lasting impact on the community while providing potential tax benefits. Understanding these components can help you create an estate plan that reflects your values.”

For some clients we advise setting up a dedicated savings account for these costs or taking out a life insurance policy so loved ones don’t have to worry about unexpected expenses. If you have concerns around estate and inheritance planning this is an area Andy specialises in and he would love to hear from you, when you are ready.

Contact Andy Lei

4 reasons why Inheritance tax (IHT) can be so damaging

Inheritance Tax (IHT) can have a substantial affect on the assets you leave to your children and other beneficiaries, potentially reducing the inheritance they receive. Here’s how it impacts them and why effective planning is crucial:

1. Tax on the estate: Inheritance Tax is levied on the value of your estate once it exceeds tax-free allowances. For the 2024/25 tax year, the standard IHT rate is 40%, which is applied to the amount over the tax-free threshold, known as the nil rate band, of £325,000. The nil-rate band is available to all individuals and can be set against all asset types on death. The nil-rate band can also be used to allow individuals to make lifetime chargeable transfers up to £325,000 within a 7-year period without an Inheritance Tax liability.

2. Passing on property: The inheritance tax threshold can be increased if you leave your home to your children or grandchildren, this is known as the residence nil rate band which sits at £175,000. If you plan to leave a family home to your children, IHT can complicate matters. Whilst the residence nil rate band provides additional tax relief, the rules can be complex. If your total estate value exceeds £2 million, this additional allowance is gradually reduced. Whilst £2m might sound a lot of money, when you take in to account what your property is worth, your pensions, savings and other assets, it is surprising how it all adds up. As you can probably tell, without proper planning, a large portion of your estate may be subject to tax, significantly reducing what your beneficiaries inherit. It’s important to structure your estate in a way that maximises allowances to minimise the tax burden on your beneficiaries.

3. Impact of gifts: Gifting assets to your children during your lifetime can reduce the size of your estate for IHT purposes, but there are rules to be aware of. Gifts made within seven years of your death may still be subject to IHT, depending on the value and timing of the gift. There are also exemptions, such as the annual gift allowance, which can be used to reduce the IHT impact on your children. You can read in to gifting in more detail in this article on inheritance tax planning.

4. Cash-flow issues: If a significant portion of your estate is made up of illiquid assets, like property or business interests, your children may face cash flow challenges when settling the IHT bill. They might need to sell assets quickly or take out loans to pay the tax, which can create financial strain. A financial adviser will plan ahead and work with you to understand how insurance policies which can be put in to trust can cover tax liability and alleviate the burden.

Inheritance tax PRO tips: Simon Jones

Here are 4 top tips from Bristol and Bath based Financial ADVISER Simon Jones around how to mitigate inheritance tax:

Use your nil rate band: “Each individual has a tax-free allowance, known as the nil rate band. If your estate’s total value exceeds this threshold, any excess may be taxed. Married couples and civil partners can combine their allowances, potentially doubling the tax-free amount.”

Residence nil rate band: “An additional allowance applies if you are passing on your main residence to direct descendants, such as children or grandchildren. This can further reduce the tax liability on your estate.”

Gifting: “Making gifts during your lifetime can be a highly effective IHT strategy. There is a gifting allowance that enables you to gift a small amount every tax year without it counting towards your estate. Any gifts made more than seven years before your death are generally exempt from IHT. Additionally, you can make unlimited small gifts per person per tax year.”

Life insurance: “A life insurance policy written in trust can provide funds to cover the IHT bill, preventing your children from needing to sell assets.”

To find out what all the nil rate band and gifting thresholds are, head to our 2024/25 tax tables. The rules around inheritance tax have recently changed since the 2024 Autumn Budget, you can find out more in our Guide to the 2024 Autumn Budget. Unspent money left in a defined contribution pension when you die, will now be included in inheritance tax calculations from April 2027. If you want to find out more about working with Simon Jones please get in touch with him directly.

Contact Simon Jones

How to invest for long-term financial stability

Investing wisely is crucial for maintaining financial stability throughout retirement. With rising living costs and healthcare expenses, it’s essential to have a diverse investment portfolio that can withstand market fluctuations. A balanced portfolio typically includes a mix of stocks, bonds, and other assets. Stocks can provide growth potential, while bonds offer stability and income, which can be particularly appealing for seniors looking for more predictable returns. You can find out more about saving in our Ultimate Guide to Investing, if this is something that interests you.

As you get older, it’s important to reassess your risk tolerance. Younger investors might consider taking on more risk for potential higher returns. As you approach retirement, a more conservative approach is often advisable and this then may change again in post-retirement. However, this is relative to your financial situation and we have plenty of older clients where this differs. Big life events can also affect your attitude to risk like separation or divorce or the death of a loved one.

Some clients consider shifting a portion of their portfolio into fixed-income investments or dividend-paying stocks to secure a steady income stream while reducing exposure to volatility. Look for funds that align with your investment goals and risk tolerance. Regularly reviewing and rebalancing your portfolio is essential to ensure that it continues to meet your financial objectives throughout retirement. If you havne’t got the energy or time for DIY Financial Planning, then that is where you must outsource it to a professional.

For more on investments and savings read our Ultimate Guide to Investment Planning.

Investment Planning Guide

Capital gains tax (CGT) on the sale of property

If you are considering moving out of your home in to a different type of property to suit your lifestyle you need to consider if you will need to pay Capital Gains Tax. If that property was your main home for the entire period of ownership, you won’t pay CGT. If during its ownership you rented the property out or used it as an additional home, partial relief may apply.

If you have invested in to properties over the years or you have a second home and you are considering selling those assets, you may incur Capital Gains Tax. This tax is levied on the profit you make from the sale. Your annual CGT allowance can reduce the taxable gain but different rates apply depending on whether you are a basic or higher rate taxpayer. To read more detail on this please head over to our Tax Planning Hub or our Guide to The 2024/25 Tax Year.

Planning for care in later life: Long-term care & equity release

The potential cost of long-term care is a consideration for older adults and their family members. Preparing for this ensures you have access to quality care without depleting your estate. There are people forced to sell their parent’s house to afford to pay for care but there strategies a financial planner can use to fund long-term care:

Care annuities: Provides a guaranteed income for life to cover care costs. Whilst expensive, they offer peace of mind that care needs will be funded indefinitely.

Using investments and savings: You could choose to set aside money in a low-risk investment or savings account earmarked for future care.

NHS Continuing Healthcare: If you have substantial health needs, you may qualify for fully funded care from the NHS. Understanding the eligibility criteria is key.

To find out more about gaining advice on long-term care get in touch with our long-term care financial adviser Simon Jones.

Equity Release could be a consideration

Equity release is a way to unlock the value tied up in your home to put towards various needs. It’s a major financial decision that requires careful consideration. Simon Jones, is qualified to advise clients on long-term care and equity release and he talks us through a few things:

What is equity release? “The two main types are lifetime mortgages, where you borrow money secured against your home but retain ownership. Then there is home reversion plans, where you sell a part or all of your home in exchange for a lump sum or regular payments. Lifetime mortgages are more common but accrue interest over time, reducing the inheritance you leave behind.”

What are the common uses for equity release? “Use it to supplement retirement income, pay for home modifications, cover long-term care expenses, or support family members financially. Equity release may impact your eligibility for certain means-tested benefits.

What about later life mortgages? “Later life mortgages, including retirement interest-only mortgages and standard repayment mortgages for older borrowers, can be a viable option if you need to borrow money. Retirement interest-only mortgages require you to pay interest each month, with the loan amount being repaid when you sell your home or pass away. You need to ensure you have a sustainable income to cover the interest payments. Before taking out a later life mortgage, think about your income stability, future care needs and the impact on your estate. It’s essential to work with a financial adviser who can help you choose the most suitable option.”

Contact Simon Jones

Supporting clients who need extra care with thoughtful financial advice

Some individuals may need extra support with their financial planning journey, which the financial services industry refers to as a “vulnerable client”. A client can become vulnerable from a variety of factors such as health, life events, limited financial resilience or a significant lack of confidence in managing money.

Unividual’s advisers are qualified and experienced to advise vulnerable clients. This might be one of your parents, a close friend or spouse. We are committed to providing compassionate and tailored financial advice, ensuring that everyone, regardless of their situation, receives the care and consideration they deserve. This means taking the time to get to know each client’s unique circumstances and the specific challenges they face. It also means explaining financial concepts in simple, straightforward language that they will understand. We always ensure we offer tailored support to ensure all our clients understand what choices they have.

Thoughtful, empathetic financial advice empowers people to feel in control of their finances. If you are researching financial support options, on behalf of a potential client, this isn’t uncommon, don’t feel alone. We get lots of enquiries of this nature and we will enjoy working with you to support your loved one.

Tax implications for children living in their parents' property

If your adult children live in a property that you own, there are specific tax considerations to be aware of, ones that can have a significant impact on your financial planning, estate management and the amount of tax your beneficiaries may have to pay when the estate is settled. Here’s a detailed look at how this situation may affect both you and your children.

Benefit in kind: Allowing your children to live in your property rent-free or at a reduced rent may trigger tax consequences. While the rules around this can be complex, here are the main points to consider:

Although the concept of a benefit in kind is more commonly associated with employment and perks, in some cases HMRC may view the free use of a property as a benefit. This could affect the overall tax liability, depending on the circumstances.
If you gift the property to your children but continue to benefit from it (for example, by living there occasionally or using it as a holiday home), it could still be considered part of your estate for IHT purposes. This is known as: a gift with reservation of benefit. It means that the property’s value would be subject to IHT if you pass away, negating any tax advantage from the gift.
Many people underestimate how these rules can affect their estate. For instance, if you intended to gift the property to reduce the value of your estate and avoid a large IHT bill, but continue to benefit from the property, the strategy may not be effective because of the large percentage of IHT you can be charged on the value above the nil rate band, this can result in a substantial tax bill for your heirs.

Rental income considerations: If you decide to charge your children rent to avoid the gift with reservation of benefit rules, there are additional tax obligations.

Any rent you charge must be declared as income on your tax return. This rental income will be subject to income tax, which could increase your overall tax liability, depending on your other sources of income.
You can offset certain expenses against the rental income to reduce your taxable amount for example maintenance costs, repairs, and mortgage interest. However, you must ensure you claim only eligible deductions.
If the rental income pushes you into a higher income tax bracket, it may result in more tax payable overall. This can be particularly impactful if your other income sources already place you near a tax threshold.

The financial impact of these tax implications can be considerable, especially for families who intend to provide housing for their adult children. For many, the tax liabilities associated with rental income or the risk of IHT on a gifted property can amount to thousands or hundreds of thousands of pounds. If the property is of significant value, the IHT liability alone could be a large financial burden, reducing the inheritance your children receive. We have had clients contact us in this situation and because their parents did not seek advice they are having to sell the family home to pay for the tax. A forced sale to cover tax liabilities could cause considerable financial stress. Given the complexity of these tax rules and the potential for substantial financial consequences, it’s essential to seek professional financial and tax advice. Proper planning can help minimise tax liabilities and ensure that your arrangements align with your family’s needs and your estate planning goals.

Protecting against financial scams and fraud

With the rise of technology and AI fraudsters and con-artists are getting even harder to spot. All of us are targets for financial scams and fraud, making it imperative to stay vigilant and informed. Awareness of common scams, such as phishing emails, fraudulent investment schemes and identity theft, can help you protect your hard-earned savings. Always verify the legitimacy of any investment opportunity or financial offer before providing personal information or money.

Developing a strong network of family and trusted friends can also serve as a safeguard against financial exploitation. Encourage open discussions about finances and any concerns you may have. If something seems too good to be true, it often is. Regularly monitor your financial accounts for unusual activity and consider subscribing to identity theft protection services for added security.

Educating yourself about your rights as a consumer can bolster your defence against fraud. Familiarise yourself with resources such as the Financial Conduct Authority and find extra resources and support on the Monday & Pensions Service. AgeUK provide one of the best guides around for avoiding scams. Taking proactive measures can help ensure that your retirement savings remain secure and that you enjoy your life without the worry of financial fraud.

Conclusion: Achieving financial security

To conclude all this, Dorset based Chartered Financial Planner, Scott Gurd, says: “Achieving financial security requires careful planning, informed decision-making and a proactive approach to managing your resources. It isn’t too late for you to achieve this for your family. By understanding your retirement options, maximising your income and engaging in thoughtful estate planning, you can create a stable foundation for everyone. Education is key in navigating the complexities of retirement finance. Utilise available resources, whether through community programs or online platforms, to enhance your financial literacy. Seeking professional assistance can further ensure that your strategies are aligned with your goals and needs. As you embrace this new chapter of life, remember that financial prosperity is within your reach. With the right tools and knowledge, you can enjoy your life with peace of mind, knowing that you have taken proactive steps to secure your financial future. Embrace the journey ahead, equipped with the confidence and resources to thrive in your retirement.”

“One of my clients, Gordon, recently reached retirement age while dealing with the profound loss of his wife. Although he had always been careful with his financial planning, the combination of him approaching retirement and significant life changes made him realise he needed professional support to make the best decisions for his future. Gordon had a few key concerns about seeking financial advice: he was mindful of costs, the time involved and whether the advice would truly add value. Gordon has shared his story so that others too can really understand the value financial advice can have on people’s lives.”

Read Gordon’s story

What is next? Your three options for securing your financial future

When it comes to managing your finances, you have three choices from this point onwards:

1. You can do nothing: Leave your finances as they are. BUT please keep in mind this might lead to unexpected tax burdens and missed opportunities to protect your wealth. Failing to plan may result in a higher inheritance tax bill and financial stress if care needs arise.

2. You can do something: Take proactive steps to manage your financial situation. Have open conversations with your family. Review your income sources. Make tax-efficient adjustments and consider looking at some additional resources, especially Money Helper which is ran by the government. This professional guide can give you some ideas around how you make the best use of your assets, minimise tax liabilities and much more. However, if this doesn’t give you the peace of mind you need move to step three.

3. You can do the one big thing: Engage with a qualified financial adviser who can create a tailored plan for your unique circumstances. Financial advice is a lot more affordable than people realise. Research advisers local to you and what the real benefits of financial advice are. When you are ready if you want to reach out to us, you know where we are but we do encourage you to look at other financial advice websites in your local area too.

Taking control of your finances now can make all the difference. Which option will you choose?

Protect what matters most: Make your move today...get in touch!

Author: Cherie-Anne Baxter-Blyth

Date: 19th November 2024

Updated: 19th November 2024

Approver: Quilter Financial Limited Date 25th November 2024

Risk Warnings

The Financial Conduct Authority do not regulate will writing, trusts, inheritance tax, estate planning and cash on deposit.

Will writing is not part of the Quilter Financial Planning offering and is offered in our own right.

The value of pensions & investments and the income they produce can fall as well as rise. You may get back less than you invested.

Tax treatment varies according to individual circumstances and is subject to change.

Equity Release, Lifetime Mortgages & Home Reversion plans will reduce the value of your estate and can affect your eligibility for means tested benefits

The figures in this article are correct on the day the article was published or updated.

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